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September 14, 2009

INTEL CASE STUDY

INTRODUCTION

Competencies refer to the fundamental knowledge owned by the
firm, and to be distinctive they are not confined to functional domains but cut
across the firm and its organizational boundaries (, 2002). The notion of
distinctive competencies, first discussed by (1957) and (1965), was
further reiterated by and (1990). In their analysis, key
resources, skills and technologies are called core competencies. The following
takes the Integrated Electronics (Intel) case and analyses the giant digital
company’s core competencies by way of the three epochs that it has gone through
since 1968.

EPOCH I

This first era that
Intel has gone through, specifically between the years 1968 and 1985, has
displayed the company’s corporate values which have become the firm’s foundation
for the success that it will witness in the succeeding years to come. The
development of their products to impact their core competencies involved an
approach to management which was structured, disciplined and controlled. They
have a corporate culture that fosters constructive debate, in where rewards are
associated with high performance, and which allows for the recruitment process
to be focused on hiring people suited to their culture. As for the strategic
fit, or how well Intel’s mission and strategies fit its internal capabilities
and its external environment, the company has taken pains to make sure that
their aims are clear, specifically, this is to make memory chips which did not
compete directly with Fairchild Semiconductors and other companies in the same
field because they were complex. Their strategies, therefore, are moulded on the
ground work that they are a firm of less-complex products, which partially
contributed to the informality of their planning system. Additionally, their
technical excellence is linked to goals which were laid out by the management,
providing a fit and a marriage of their mission and strategies to their internal
capabilities and external environment. The main characteristic, therefore, of
the Intel company in this first phase is its informality in their planning
system, in that ideas bubbled up from engineers and marketers which the top
management assessed and allocated funds to. An analysis of Porter’s five forces
in the context of Intel would reveal that:

Threat of New Entrants ~ The
threat of new entrants is very low due to high entry barriers to the industry.
The economies of scale, i.e. the not-so-competitive prices in the industry, the
sizeable amount of capital and investment requirements and the difficult access
to industry distribution channels are some of the contributors to the high
barrier of entry to the semiconductor industry. Additionally, it is not easy to
penetrate this type of industry due to the requirement of highly specialised
skills to be able to barely survive the competition.

Threat of Substitutes ~ The
threat of substitutes is low, as the price to shift from one semiconductor
provider is relatively large. As companies are often looking for ways to achieve
competitive advantage through buying high-end semiconductors which would provide
the highest efficiency, the buyer’s willingness to substitute is pretty low once
they find that the provider is very suitable to their needs. Also, the price and
performance of the substitutes, coupled with the relatively high cost of
switching to substitutes do not present a grave threat to the company under
analysis.

Bargaining Power of Buyers ~
As there are only a few semiconductors providers who can compare to what the
company has managed to achieve in this era, the bargaining power of buyers is
not as great coupled with the industry being a key supplying group for the
buyers, which in this case, are large companies.

Bargaining Power of Suppliers
~ there are is a sparse of dominant suppliers in the industry, and they so far
have not threatened to integrate forward to the industry, or threaten to set up
their own retail outlets due to absence of strong Internet presence and powerful
IT platform, so the bargaining power of suppliers is highly controlled. This
presents a potent competitive advanatge for Intel, in that they are able to
control the prices of their raw materials, thus resulting to more controlled
expected earnings.

Intensity of Rivalry between Competitors ~ Rivalry is not very intense, as there are only a few
dominant industry competition, and few still have powerful and fully integrated
IT platforms. In fact, as one of their aims is not to compete on the Fairchild
Semiconductors level, they have managed, at this point in time, to make a safe
niche of their own in the industry with which to call solely their own.

This first phase that Intel went through has been an
indicator that the company is bound to face a lot of changes in the run
primarily due to the nature of business that they are in, likewise the PEST
Analysis of the semiconductor industry in general.

EPOCH II

With the dawn of the 1980s also came a more
crowded marketplace, which prompted the digital company giant into a paradigm
shift, mainly evidenced by the move away from chip suppliers towards equipment
manufacturers and by the withdrawal from the DRAM production, as the company
realised that they would never be able to compete with the said market. There
was significant resistance on the part of the employees with this move form the
management, and only with properly executed change management were they able to
pull through of the mess of this shift. In the past their business strategy was
to innovate faster than competitors, exploit leader advantages and then move on
to the next generation of technology. Intel is revising its overall strategy in
response to market changes. For the first time since the latter phase, it is
creating semiconductors for the low-cost computer market, which is expected to
grow dramatically in the next several years.

In these markets, profit margins are typically lower. This
may, in the following phase, move Intel to diversify its strategy to address
different markets—those that demand rapid product innovation and those that
demand low-cost innovations. Intel seeks these rapid, incremental technological
advancements in a very structured development process. They accomplish this in
part through concurrent development of product generations and their associated
manufacturing processes. That is, new products (including semiconductor chips
and software) and their new manufacturing processes are developed
simultaneously. The move from informal planning to a more structured planning
was also evident. Formal strategic planning processes and corporate management’s
statements of strategy began to champion microprocessors. Intel appears to be a
relatively flat organization—no product divisions; sales and product groups have
a few engineers dedicated to support a specific product. While manufacturing
operations are organized under one individual, employees are geographically
dispersed. Specific manufacturing project teams are pulled from across the
organization as required. Intel has a history of maintaining a fluid and
flexible organization where all such forms are ultimately transitory, and their
purpose is to respond to the needs of the time.

With this turbulent change phase came the rise of a great
deal of new thinking. As stated in the case, a new link was created between
manufacturing and technology and the approach to the latter was rethought and
moved away from being so product-based. Manufacturing became less important than
product definition and design and sales and marketing. Manufacturing
improvements are developed concurrently by a fluid or a virtual organization
that supports the entire corporation. These personnel are geographically
dispersed and different groups are pulled together on a project basis. After
project objectives are met, the organization will restructure to meet the next
challenge. What had previously been an informal planning process for the company
is now becoming difficult in what had become a huge corporation. A political,
economic, social and technological (PEST) analysis would show how the external
environment of the Intel firm has managed to affect the company developments
during this epoch from the years 1986 to 1998.

Political ~ In the
semiconductor industry, competition regulation is low and corporate and
individual taxes are major considerations. Further, due to the increasing
internationalisation of semiconductor firms, they are being subject to
international trade regulations and consumer protection has also become a major
consideration. This has further affected the potential entrants to the industry,
and has led to Intel focusing on having their research and development on
environmental management to protect their consumers.

Economic ~ The economic
growth of target market is fairly positive, in the semiconductor’s industry
case; the target market is the electronics industry. Industry growth is very
promising and, coupled with exchange rates being relatively stable, promises a
wealth of opportunities for those who are already established in this industry.
With the increased pace in the change in technology spurred by more need for
higher and more advanced technology, the demand for the semiconductor industry
is stronger than ever. This presented a whole avenue of possibility for Intel to
develop their products at a rate which will keep up with the demands of the
market.

Social ~ Even income
distribution among target market is observed in this industry and main consumers
are large companies. As the nature of the industry in which Intel is involved in
is a very dynamic nature where change and innovation are everyday words, there
exists the need to constantly be sensitive to the change in market demands and
preferences, as it is the key to maintaining market leadership in this type of
industry.

Technological ~ A very fast
technological transfer and a very fast rate of technological obsolescence is a
characteristic of the industry. A unique aspect of the semiconductor industry is
that prices for products tend to decrease over time. Not only does the price
fall for a given integrated circuit, but as the complexity of the chip
increases, the price per electronics function decreases from product generation
to generation as more and more functions are integrated into a single structure.
This phenomenal increase in industry productivity is the driving force that has
made semiconductor electronics the technology of choice for all control and
computing applications.

There are two reasons why the cost of this technology
consistently drops: first, the broad applicability of semiconductor devices
leads to a phenomenally elastic market, so that decreases in cost are more than
balanced by increases in the total unit demand. The total market continues to
grow in dollars despite the fact that the products are falling rapidly in price.
Second, because of the unique nature of the technology, by making things smaller
the speed of the circuits increases power consumption drops, system reliability
increases significantly, and, most importantly, the cost of the electronic
system drops. By making things smaller, development density is increased. More
function can be built on a given area, causing the price of electronic functions
to be cheaper and cheaper. Technology evolves so rapidly that the market moves
to the next generation or beyond. Thus, to be successful it is necessary to
continue investing in new products even during these down periods. Intel did
this. In the following phase, the case showed aggressive moves on the part of
the firm.

EPOCH III

Stakeholders have increasingly become important to
contemporary business. Involvement of stakeholder groups has become a part of
Intel's environmental management during this last phase of the firm’s history.
There was therefore the need to enumerate the company’s stakeholders in order to
fully understand them and consequently meet their needs. The main stakeholders
of Intel are: (1) customers; (2) developer community; (3) semiconductor industry
and (4) stockholders. As Intel works with the developer community, customers and
others, it is building platforms that combine elements such as microprocessors,
chipsets, communications silicon, software and other technologies. Intel is
extending the platform approach across a number of areas including the digital
home, the enterprise, healthcare, more broadly into mobility and across
worldwide markets. Meeting the needs of end-users also involves the development
of technologies that not only boost performance but also improve security,
reliability, manageability and other aspects of computing and communications. As
resources are basic elements that a firm can control in order to best organise
its operational processes, an audit of the resources of a firm is a must if it
is to utilise them to create the latter. The resource-based view draws attention
to those internal resources created within a particular enterprise that cannot
be purchased externally. The sustainability of a company’s competitive advantage
depends upon the ease with which the resources can be imitated or substituted (,
1993). When resources are combined they can lead to the formation of
competencies and capabilities ( & , 1990).

Financial Resources ~ The
annual revenues of Intel have grown phenomenally in recent years, thanks to the
push for more advanced technology by consumers. Since 1991 annual revenues have
climbed from $4.8 billion, more than five-fold to $25.1 billion in 1997 (, ,
& , 1999). To continue this growth, Intel seeks to continue to be the
pre-eminent building-block supplier to the computer industry worldwide. With
these strong financial revenues, the company is expected to achieve their target
profits in the years to come through the utilisation of this resource which they
have plenty of for investment in worthwhile projects.

Human Resources ~ The total
number of Intel employees was 63,700 at 1997 year-end, up from 48,500 in 1996 (,
1999). Worldwide EH&S staff number around 225 and are organized by site (,
1997). Although there is historically a resistance on the part of the employees
when it comes to change, there is sufficient cooperation from them on an overall
note, especially whet it comes to innovations for the good of the company.

Physical Resources ~ The
company under scrutiny is an international company with more than a dozen major
facilities outside of the United States, located in eight countries. According
to (1997), there are six sites in the continental United States—in
Arizona, California, New Mexico, Oregon, and Washington—with multiple facilities
at each and one site in Puerto Rico. Its oldest and smallest manufacturing
facility, wafer fabrication facility on the Aloha campus in Oregon, was built in
1978 and was closed in 1996. In recent years Intel has been building a new
fabrication facility, an investment of $1 billion to $1.5 billion, every nine to
twelve months (, 1997). With the advancement of their physical resources in
comparison with existing competitors, it is not surprising to see that Intel has
majority of the market share.